The UK Stewardship Code (the Code) was originally published in 2010 following a review of corporate governance. The Financial Reporting Council (FRC) has responsibility for the Code, and promotes the long-term success of companies, outlines principles underlying an effective board, and fosters active investor monitoring and engagement of companies. All UK-authorised asset managers are required to produce a statement of commitment to the Code or to explain why the Code is not appropriate for their business model (the “comply or explain” approach discussed below). As such, there are 305 signatories to the Code, which primarily include asset managers and asset owners (pension funds, endowment funds, and charities).

The Code was last revised in 2012, and the FRC notes that there have been significant changes in the interim. In particular, legal and international developments concerning ESG issues and legal developments concerning the application of ESG issues in the context of trustees’ fiduciary duties (including pension trustees). For more information on ESG issues, please see Latham’s previous blogs here and here.

In January 2019, the FRC published a consultation on a revised Code. The consultation will run until 29 March 2019, with the final version of the Code due for publication by summer 2019. This revised Code aims to increase demand for more effective stewardship and investment decision making, in particular, through incorporating ESG factors.

The Principles of the Code

The Code operates on a comply or explain platform and identifies seven key Principles that require signatory institutional investors to:

Disclose publicly their policy on how they will discharge their stewardship responsibilities

Implement a robust policy on managing conflicts of interest in relation to stewardship, which should be disclosed publicly

Monitor their investee companies

Establish clear guidelines on when and how they will escalate their stewardship activities

Act collectively with other investors if appropriate

Have a clear policy on voting and disclosure of voting activity

Report periodically on their stewardship and voting activities

Proposed Incorporation of ESG Issues Into the Code

The proposed changes to the Code include developing organisational purpose, disclosing stewardship objectives and governance, aligning with the UK Corporate Governance Code, and amending reporting requirements. The revised Code will introduce Principles and Provisions, supported by Guidance. All signatories must follow the Principles on an “apply and explain” basis, requiring them to apply the Principles and explain clearly and meaningfully how they have done so. All signatories must follow the Provisions on a comply or explain basis, requiring them to explain meaningfully any non-application of the Provisions.

The revised Code will define stewardship as “the responsible allocation and management of capital across the institutional investment community, to create sustainable value for beneficiaries, the economy and society”. The revised Code also identifies the primary purpose of stewardship as looking after beneficiaries’ assets that have been entrusted to the care of others. As such, the consultation to the revised Code indicates that the Code will include explicit reference to ESG factors, and that signatories are expected to give consideration to material ESG factors when fulfilling stewardship responsibilities. Signatories must also demonstrate how those material ESG factors are considered in the decision-making process. The revised Code does not define material ESG factors, but it does include climate change as a material factor.

The key provisions of the Code in which ESG changes are proposed include:

Principle E

This Principle requires signatories to integrate stewardship with their investment approach and demonstrate how they take into account material ESG factors, including climate change.

Provision 9

Asset owners and asset managers are encouraged to disclose the structures and processes in place to ensure that information gathered through stewardship activities is factored directly into investment decision making.

The signatory is expected to demonstrate how stewardship is integrated with investment approach, and how stewardship can be evidenced by team and joint engagement meetings, presentations, information-sharing across platforms, and involvement of ESG teams.

Provision 11

Asset owners are encouraged to ensure that investment and stewardship mandates reflect beneficiaries’ investment time horizon, and asset managers are encouraged to align investment and stewardship activities with beneficiaries’ investment time horizon. Furthermore, both asset owners and managers are encouraged to demonstrate how ESG issues are considered.

Provision 13

Asset owners are encouraged to provide clear and actionable asset assessment criteria for managers, so that appropriate investments are made in accordance with strategy. This can be evidenced by explaining the methods and detail of criteria given to managers for pre-investment monitoring, for example outlining the extent of engagement on ESG issues pre-issuance. Asset managers will be encouraged to evaluate assets and investments accordingly.

Conclusion

The revised Code has been broadly welcomed, although some have expressed concerns about whether the Code will encourage a robust and substantive review of ESG issues, or whether ESG will be reduced to tick-box items on a checklist.

Further, finalisation of the revised Code by summer 2019 may also depend on the proposed transformation of the FRC, which is to be replaced by the Audit, Reporting and Governance Authority. This new Authority will be a statutory body with a new mandate, new leadership, and stronger powers.

Latham will continue to follow and report on developments in this area.

]]>https://www.globalelr.com/2019/03/esg-matters-incorporated-into-uk-stewardship-code/feed/0TCI Proposes to Reduce Carbon Emissions From Transportation in the Northeasthttps://www.globalelr.com/2019/03/tci-proposes-to-reduce-carbon-emissions-from-transportation-in-the-northeast/
https://www.globalelr.com/2019/03/tci-proposes-to-reduce-carbon-emissions-from-transportation-in-the-northeast/#respondMon, 11 Mar 2019 19:53:42 +0000https://www.globalelr.com/?p=3826Continue Reading]]>TCI’s proposal is poised to become its own carbon reduction program with a focus exclusively on the transportation sector, alongside RGGI’s existing cap and trade program.

The Regional Greenhouse Gas Initiative (RGGI) may soon have a transportation-focused companion to its functioning power plant-focused cap-and-trade program. Operating under the banner of the Transportation & Climate Initiative (TCI), most of the RGGI jurisdictions announced plans on December 18, 2018, to design a program to address carbon emissions from the combustion of transportation fuels. TCI plans to seek input from stakeholders and develop a policy during 2019, with the intention that each participating jurisdiction could adopt and implement the policy in 2020 and beyond.

The structure of the program is not yet clear. In its press release, TCI indicated that the program would cap and reduce transportation fuel emissions, with revenues from the system reinvested in carbon-reduction technologies and transportation infrastructure. However, key details of the program, including the level of the emissions cap, the mechanisms for auctioning and reinvesting auction proceeds, and the categories of entities covered by the program (i.e., the point of regulation), have not been determined.

Background on RGGI and TCI

When its first compliance period began in 2009, RGGI became the first mandatory market-based program in the United States to regulate greenhouse gas (GHG) emissions. RGGI caps carbon dioxide (CO2) emissions from fossil-fueled power plants on a regional level, and then sells allowances to emit CO2 at quarterly auctions. The proceeds from these auctions are used to invest in energy efficiency, renewable energy, and other consumer-benefit programs. Regulated entities in RGGI states must hold and retire allowances equal to their CO2 emissions over a three-year control period.

The nine Northeast and Mid-Atlantic states that make up RGGI include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. New Jersey left RGGI in 2012 following a decision from then Governor Chris Christie, but is now in the process of rejoining. Virginia is in the process of joining RGGI for the first time. Both New Jersey and Virginia hope to participate in the 2020 RGGI allowance auction.

Since 2009, GHG emissions from the power sector covered by RGGI has decreased by 53.3% when compared with the average baseline emissions between 2006 and 2008[i]. In addition, according to an independent study by Analysis Group in 2018, RGGI led to approximately $1.4 billion in economic value added between 2015 and 2017, a result the study attributed to participant states’ spending on energy efficiency measures, community-based renewable energy projects, customer electric bill assistance, GHG reduction measures, research, and education and job training programs, using funds derived from RGGI’s carbon allowance auctions.

TCI was formed nine years ago as an offshoot of RGGI, and includes all of the current RGGI member states as well as New Jersey, Virginia, Pennsylvania, and the District of Columbia. Ten of the TCI jurisdictions decided to participate in the TCI program to cap GHG emissions from transportation: Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont, Virginia, and the District of Columbia. It is possible and expected that more jurisdictions, such as New York and Maine, eventually will join. TCI is facilitated by the Georgetown Climate Center and is administered by state and district agencies located within the 13 TCI jurisdictions. Each agency is free to determine whether, and how, it will participate in individual projects and working groups.

TCI’s Proposal: The Details

The low-carbon transportation program will be refined over a one-year development process, which will include input from stakeholders and experts. Though the structure of the program is not yet clear, the TCI press release indicates that a potential approach is to set a cap on carbon emissions from transportation, and that such a cap will decline over time. It is possible that allowances to emit carbon emissions under the cap will be sold and traded as part of this program, much like the current RGGI program for power plants. In other words, it would appear that the TCI proposal is poised to become its own cap-and-trade program, alongside RGGI, with a focus exclusively on the transportation sector.

Contrast With Low-Carbon Fuel Standards

Several jurisdictions worldwide, including California, Oregon, British Columbia, and the United Kingdom, have existing policies in place to reduce the carbon intensity of transportation fuels using variations on a low-carbon fuel standard (LCFS). Some of these programs mandate the blending of biofuels into petroleum-based fuels, and some include provisions for auctioning and trading compliance credits. Some, like California, focus not only on emissions of carbon dioxide, but on all greenhouse gases emitted by the transportation sector. All of the LCFS programs measure life cycle emissions — including the direct effects of producing and using the fuel, as well as the indirect effects, such as land use changes, that are primarily associated with biofuels — to calculate carbon intensity.

It does not appear that TCI is considering an LCFS standard for the Northeast at this time. Rather, it appears that TCI’s proposal is, for the time being, focused solely on regulating tailpipe emissions of transportation fuels.

TCI’s Proposal Going Forward

Over the next 12 months, TCI is expected to engage the public, stakeholders, and expert consultants, as well as conduct modeling activities and reviews of potential design decisions and impacts. As part of this outreach, TCI plans to contact fuel providers for input on their policies. In addition to developing a low-carbon policy proposal for transportation fuels, TCI will prepare complementary policies, such as coordinated infrastructure planning, land use planning improvements, and the development of green banks and other innovative financing mechanisms. In late February, signatories to the TCI agreement finalized the schedule for developing this plan at a meeting in Washington, D.C. The schedule calls for arranging stakeholder meetings in April 2019, conducting modeling activities over the summer of 2019, and having a final proposed plan by early fall 2019. This timeline will give TCI member states the opportunity to review the plan and determine if they want to endorse it by the end of the year.

The introduction of a low-carbon fuels program in the Northeast represents a significant development for the clean transportation industry. The lengthy development process also offers fuel suppliers, both traditional and low-carbon intensity, an opportunity to engage with policymakers to help craft a program that delivers maximal benefit to the public and the transportation system while minimizing costs imposed on suppliers and motorists. As an example of how such costs can shake out, under California’s LCFS, the cost of regulating transportation fuels is passed through to consumers via heightened prices at the gas pump.

Depending on the final shape of the program, policymakers could be presented with numerous opportunities to maximize its size and effect. In addition to the flexibility for entities to meet emissions reductions in a cap-and-trade program, there are incentives for the TCI program to adopt a program with cap-and-trade characteristics. The TCI program could be linked to the existing RGGI power-plant program, and could allow for future linkage to the cap-and-trade programs in California and Quebec.

[i] This decrease in CO2 emissions only relates to RGGI electric generation sources, and factors in CO2 emissions reductions from broader economic and industry factors, as well as the RGGI program design and implementation. The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States, The Analysis Group, April 17, 2018, pg. 3, available here.

The Supreme Court’s unanimous ruling inWeyerhaeuser Co. v. U.S. Fish & Wildlife Serv., 586 U.S. (2018) has important implications for landowners facing “critical habitat” designations under the Endangered Species Act (ESA) for areas that are unoccupied by listed species. The timing of this decision likely means the US Fish and Wildlife Service (FWS) will incorporate it into forthcoming final regulations the FWS is currently promulgating.

Background

In Weyerhaeuser, the US Supreme Court considered two main questions:

Can critical habitat include areas where the species cannot currently survive?

Is the FWS determination not to exclude a particular piece of land as critical habitat reviewable by a court?

At the center of the dispute is a three-inch long frog, called the dusky gopher frog, that spends the majority of its time in burrows and stump holes. The FWS designated the dusky gopher frog as an endangered species in 2001 when the frog’s population had dwindled to a group of 100 living in a single pond in Mississippi. Under the ESA, when the FWS designates a species as threatened or endangered, it must also designate critical habitat for that species unless it is not prudent or determinable. Critical habitat may include areas that are currently occupied by the species, and areas unoccupied by the species if those unoccupied areas are essential for the conservation of the species. Before designating critical habitat, the ESA requires the Secretary “to take into consideration the economic impact” of the designation and authorizes him or her to “exclude any area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of [designation].”

In 2010, the FWS designated four areas known to have populations of the dusky gopher frog as critical habitat because they each possessed three physical and biological features “essential to the conservation” of the frog:

Ephemeral ponds

Upland open-canopy forest containing the holes and burrows in which the frog could live

Open-canopy forest connecting the two

The FWS determined that the four designated occupied critical habitats would not be enough to ensure the frog’s conservation and so designated an area of unoccupied critical habitat consisting of a 1,544-acre privately-owned site in St. Tammany Parish, Louisiana. The FWS dubbed this area “Unit 1.” The last known dusky gopher frog on Unit 1 was seen in 1965. Since that time, the majority of Unit 1 had become a closed-canopy timber plantation. Despite not having open-canopy forests necessary for designation as critical habitat, the FWS determined that an open-canopy forest could be restored with reasonable effort.

When proposing Unit 1 as critical habitat, FWS also considered the economic impacts of the designation. Despite finding that the economic impact could reach US$33.9 million, the FWS concluded the potential costs were “not disproportionate” to the conservation benefits of designation and thus would not exercise its discretion to exclude Unit 1 from the dusty gopher frog’s critical habitat designation.

Unit 1’s owners, the Weyerhaeuser Company and family landowners, sued the FWS in an attempt to vacate Unit 1’s designation as critical habitat. Weyerhaeuser made two principle arguments in its suit:

That the FWS could not designate Unit 1 as critical habitat because the dusty gopher frog could not survive there in its current state. In other words, Unit 1 cannot be critical habitat because it is not currently suitable as habitat for the dusty gopher frog.

That the FWS determination to not exclude Unit 1 from the frog’s critical habitat was arbitrary, capricious, and an abuse of discretion because FWS did not adequately weigh the benefits of designating Unit 1 against the economic impact.

The US District Court for the Eastern District of Louisiana rejected both arguments, holding that Unit 1 met the statutory definition of critical habitat and that the FWS determination not to exclude Unit 1 was “committed to agency discretion by law” and therefore not reviewable. The US Court of Appeals for the Fifth Circuit affirmed and the US Supreme Court granted certiorari.

Does critical habitat have to be “habitat”?

In determining whether critical habitat must also be “habitat,” the Court looked to both the ordinary understanding of how adjectives work along with the statutory source of authority for critical habitat designations. The Court first noted that “‘critical habitat’ is the subset of ‘habitat’ that is ‘critical’ to the conservation of an endangered species.” Then, looking at the statutory language, which states that the Secretary must “designate any habitatof such species which is then considered to be critical habitat,” the Court concluded that “[o]nly the ‘habitat’ of the endangered species is eligible for designation as critical habitat.”

While holding that critical habitat must also be habitat, the Court acknowledged that the lower courts did not have the occasion to interpret the term “habitat” or determine whether Unit 1 could qualify as “habitat” under the ESA. Therefore, the Court remanded those questions back to the Court of Appeals for consideration.

Is the FWS determination not to exclude an area from critical habitat designation reviewable by a court?

The Court easily came to the conclusion that the FWS determination not to exclude an area from critical habitat designation is reviewable. “[T]his case involves the sort of routine dispute that federal courts regularly review: An agency issues an order affecting the rights of a private party, and the private party objects that the agency did not properly justify its determination under a standard set forth in the statute.”

The Court rejected the argument that this type of decision was “committed to agency discretion by law.” That exception in the Administrative Procedure Act (APA) has been read quite narrowly restricting it to “rare circumstances where the relevant statute is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion.” Here, the statute requires the Secretary to consider economic impact and relative benefits before deciding whether to exclude an area from critical habitat or to proceed with designation. This, the Court said, sets forth enough of a standard against which to judge the Secretary’s exercise of discretion.

This issue too was remanded to the Court of Appeals to “consider whether the [FWS] assessment of the costs and benefits of designation was flawed in a way that rendered the resulting decision not to exclude Unit 1 arbitrary, capricious, or an abuse of discretion.”

What this means for developers and landowners

First, while the lower courts will still need to decide on the exact contours of the FWS’ powers to designate critical habitat, the Court sent clear signals that it believed FWS overstepped its authority. The practical effect, however would likely be smaller critical habitat designations, and more property excluded from critical habitat designations. Indeed, even before this ruling, the FWS routinely excludes areas from critical habitat designation that have been developed, such as paved roads, buildings and other impervious surfaces that are no longer natural in nature.

Second, by ruling that the FWS determinations to not exclude an area as critical habitat are judicially reviewable, the Court gave landowners and developers a powerful tool to protect their interests and to challenge their lands’ designations as not meeting the strict criteria of “habitat.” This means that the FWS will need to carefully document its decision-making process such that a court will not find its ultimate decision to be arbitrary or capricious.

Additionally, as described in our August 2018 Client Alert, the FWS and National Marine Fisheries Service (NMFS) has proposed numerous reforms to the ESA implementing regulations, including those related to critical habitat designations. These reforms, which some commentators described as an attempt by the Trump administration to dismantle species and habitat conservation under the ESA, are intended to streamline and accelerate federal environmental reviews and permitting for various projects.

The Weyerhaeuser decision likely provides further support for at least one of the proposed reforms. Current regulations, promulgated by the Obama administration in 2016, allow the FWS to evaluate both occupied and unoccupied areas concurrently when designating critical habitat, without any step-wise considerations. The proposed rules would restore the pre-2016 requirement that the FWS “first evaluate areas occupied by the species” when designating critical habitat, and to consider unoccupied areas only when the unoccupied areas are essential because either:

Occupied areas are inadequate to ensure the conservation of the species

The result would be a less efficient conservation of the species

The preamble to the proposed rule states that restoration of the pre-2016 rule is meant to address concerns that “the Services intended to designate as critical habitat expansive areas of unoccupied habitat” and that the proposed rule changes “will provide additional predictability to the process of determining when designating unoccupied habitat may be appropriate.” The FWS presents a hypothetical that mirrors the facts in Weyerhaeuser as an example of how the agency can take into account the amount of restoration required to turn unoccupied areas into suitable habitat: “For example, the Services might conclude that an area is unlikely to contribute to the conservation of the species where it would require extensive affirmative restoration that does not seem likely to occur such as when a non-federal landowner or necessary partners are unwilling to undertake or allow such restoration.”

The final regulations were anticipated to be issued in December 2018, but have been delayed. With the Court’s ruling in Weyerhaeuser, we anticipate that the FWS will take the Court’s decision into consideration in developing its final rule, and could codify these developments as logical outgrowths of the proposed rules.

Next steps

The case has been remanded to the Fifth Circuit for consideration of the two issues set forth by the Supreme Court. The Fifth Circuit is expected to remand to the Eastern District of Louisiana to reconsider in light of the Supreme Court’s decision. While the ruling was a blow to environmentalists, property rights groups including the Cato Institute applauded the decision, declaring it “an important win for property owners against arbitrary agency decisions.”

Latham & Watkins Environment, Land & Resources lawyers will continue to track and report on developments related to the Endangered Species Act that impact landowners and project developers.

In a published decision issued June 12, 2018, County of Ventura v. City of Moorpark, Case No. B282466, the California Court of Appeal rejected part of the County of Ventura and the City of Fillmore’s (Petitioners’) appeal and affirmed the trial court’s decision that a beach restoration project undertaken by Broad Beach Geologic Hazard Abatement District (BBGHAD) and a related settlement agreement with the City of Moorpark (City) were exempt from CEQA review.

In summary, the court determined:

Two separate activities can constitute one “project” under CEQA so long as those activities serve a single purpose, have the same proponents, and are inextricably linked.

Courts do not balance the policies served by statutory exemptions against the goal of environmental protection because the legislature has already determined that the policy benefits of the exemption outweigh the benefits of environmental review.

The trial court determined that the beach restoration project and the related settlement agreement between BBGHAD and City were a single statutorily exempt project. Petitioners appealed on the grounds that even if the beach restoration was exempt, the settlement represented a separate, non-exempt project that was not properly reviewed under CEQA.

Background for Appeal

The State of California formed BBGHAD to restore Broad Beach in Malibu, California. The restoration required 1.5 million cubic yards of sand to be dumped onto the beach over a 20-year period. Most of the dumping would occur via major deposits of 300,000 cubic yards of sand every five years. During the periods of major deposits, 44,000 one-way truck trips would be taken through the City, which lies between the sand quarries and the beach. The City expressed concerns to BBGHAD about potential impacts on residents from sand hauling while the restoration project was being approved. City’s complaints led to negotiations, which culminated in a settlement agreement between BBGHAD and City.

Petitioners challenged the project in a petition for a writ of mandate and a request for injunctive and declaratory relief. The trial court found that the project, including the settlement agreement, was statutorily exempt from CEQA as an emergency action. Petitioners appealed.

Settlement and Beach Restoration Project Comprise One Project

Petitioners argued that while the BBGHAD beach restoration project might have been statutorily exempt as an emergency action under California Public Resources Code section 21080(b)(4), the settlement between BBGHAD and City was a separate non-exempt project that was not properly reviewed and approved under CEQA.

The court found that under two separate tests, the beach restoration project and the settlement constituted one project:

First, the court analyzed the question under Plan for Arcadia, Inc. v. City Council of Arcadia (1974) 42 Cal.App.3d 712, which held that two separate actions can constitute a single project so long as they are among various steps that taken together obtain an objective, and are otherwise related to each other. In County of Ventura, the court found that the beach restoration and the settlement agreement were each pieces of a single coordinated endeavor.

Second, the court looked at the three-factor test laid out in Banning Ranch Conservancy v. City of Newport Beach (2012) 211 Cal.App.4th 1209 for determining separate projects. The court in Banning Ranch found that two activities could constitute a single project under CEQA so long as the two activities had the same proponents, served the same purpose, and could not be implemented independently. In County of Ventura, the court found that because the settlement and the beach restoration had the same proponents (i.e., BBGHAD and City), served a single purpose, and were inextricably linked, they constituted a single project.

No Balancing Test for Statutory Exemptions

Petitioners also argued that, regardless of whether the beach restoration project and settlement agreement were a single project, these activities should not be exempt from CEQA. Petitioners argued that the trial court was required to balance the policies served by the exemption against the goal of environmental protection. Petitioners contended that without a balancing test, the court would not fulfill the legislature’s intention to afford the fullest possible protection to the environment.

However, the Court of Appeal held that statutory exemptions promote an interest important enough that the legislature decided to forego the benefits of environmental review. Thus, because the trial court found that the beach restoration project qualified as an exempt emergency action under California Public Resources Code section 21080(b)(4), the trial court could not use a balancing test to overrule the exemption.

Disposition

Accordingly, the court affirmed the portion of the trial court’s judgment that the beach restoration and the settlement agreement constituted a single project that was exempt from CEQA review.

The authors would like to thank Kiera Murphy for her contribution to this blog post.

[i]California court decisions on California Environmental Quality Act (CEQA) related cases can impact business not only in California, but more broadly in other US jurisdictions (e.g. under the US National Environmental Policy Act (NEPA), though statutory provisions may differ). Latham’s case summary series provides a comprehensive archive of both published and unpublished cases, in order to track judicial interpretations of CEQA and new legal developments. Unpublished or “non-citable” opinions are opinions that are not certified for publication in Official Reports and generally may not be cited or relied on by other courts or parties in any filing with California courts in other court proceedings. (see California Rules of Court, rule 8.1115).

The California Office of Administrative Law recently approved a suite of amendments to the CEQA Guidelines, which are now in effect. Latham wrote about these amendments last year, when the Natural Resources Agency began the rulemaking process under the Administrative Procedures Act. During this rulemaking process, the California Natural Resources Agency (Agency) considered comments on the proposed amendments from members of the public, responded to those comments, and made some slight revisions to the amendments. The final adopted text of the amendments is available here.

Relevant revisions to the amendments made during the rulemaking process include:

Section 15064.4 (Greenhouse Gas (GHG) Impacts): The Agency clarified that a project’s incremental contribution to climate change impacts should not be compared to state, national, or global GHG emissions to determine whether the project’s emissions are cumulatively considerable. Further, if using consistency with state goals and policies as a means to determine significance, the lead agency should explain how the project’s emissions are consistent with those goals.

Section 15125 (Baseline): The Agency clarified that the procedural requirement to justify a baseline other than existing conditions does not apply to reliance on historic conditions. Rather, the procedural requirement applies only to use of future conditions as a sole baseline.

Section 15126.4 (Deferral of Mitigation): The Agency proposed to clarify when mitigation may be permissibly deferred until after project approval, consistent with case law. In response to comments, the Agency clarified that if details are deferred, a lead agency must identify at least the types of measures that are known to be feasible and that will achieve an adopted performance standard — rather than simply provide a list of possible mitigation actions that will be considered, analyzed, and potentially incorporated.

Additionally, the Agency’s shift in approach for assessing a project’s potential transportation impacts from Level of Service to Vehicle Miles Traveled will apply prospectively as described in CEQA Guidelines section 15007. A lead agency may elect to be governed by the new Section 15064.3 immediately, but beginning on July 1, 2020, the requirements to analyze Vehicle Miles Traveled will apply statewide.

In an unpublished opinion issued May 31, 2018, Save Adelaida v. County of San Luis Obispo, Case No. B279285, the California Court of Appeal partially affirmed the trial court’s decision and held that an environmental impact report (EIR) was required for real party in interest Willow Creek Newco, LLC’s (Willow Creek) application for a minor use permit and that the EIR must analyze wastewater. In summary, the court determined:

A low threshold for requiring an EIR exists when a fair argument can be made that a project may have a significant environmental impact, even when contrary evidence exists.

An EIR is necessary when evidence regarding a project’s impact contradicts the contents of a mitigated negative declaration (MND).

Background for Appeal

Willow Creek owns a 127-acre ranch zoned for agricultural use in San Luis Obispo County. Following Willow Creek’s application for a minor use permit to construct several buildings and hold events on its property (Project), the County of San Luis Obispo (County) prepared an initial study, determined that an EIR was not required, and recommended an MND. Neighbors of the property objected to the Project and claimed that the traffic, noise, increased water use, wastewater, and cumulative impacts of the Project required an EIR. They appealed the MND recommendation to the County’s Board of Supervisors (Board), which held a hearing and upheld the decision. In response, opponents of the Project, including Save Adelaida (Petitioners), filed a petition for writ of mandate to require an EIR. The trial court issued a writ that required the County to set aside the Project’s approval pending preparation of an EIR, but determined that the EIR did not need to analyze wastewater. Willow Creek appealed the trial court’s decision to invalidate the approval of the minor use permit, and Petitioners appealed the trial court’s determination that the EIR need not analyze wastewater.

On appeal, Willow Creek challenged the trial court’s decision on the grounds that there was no substantial evidence to support an EIR based on the Project’s traffic, noise, increased water use, and cumulative impacts.

Traffic

Neighbors testified to the Board regarding the curvy, two-lane road leading to the Project site, noting its blind hills and curves and recent accidents and traffic fatalities. An expert report submitted by Petitioners found the road to be too narrow to support the Project. The court therefore held that the evidence presented sufficiently established that the road was hazardous and “substandard” and that a fair argument existed that the Project would have a significant environmental impact based on traffic.

Noise

Petitioners produced an expert report demonstrating that noise levels associated with the Project would exceed the County’s standards. Relying on this report, the court held that an EIR was needed to consider both temporary and periodic increases in ambient noise levels, and to consider whether the project met the maximum sound levels established by the County’s ordinance.

Increased Water Use

Willow Creek claimed that a well pump test conducted on a single day in 2014 showed that adequate water supply existed. The court, however, found this claim conclusory as a “snapshot” in time and credited evidence produced by Petitioners that demonstrated that insufficient water supply existed in the area. As such, the court held that substantial evidence supported a fair argument that an EIR was required to address increased water use.

Cumulative Impacts

Finally, with regard to the cumulative impacts of the Project, Willow Creek argued that fee mitigation programs were sufficient to address cumulative impacts to public services, including fire and emergency services. However, the court found testimony by the County fire chief and residents calling into question the adequacy of this measure persuasive. The court also found that properties that are converted for tourist retail sales and event purposes do significantly impact environmental factors such as traffic, noise, fire and emergency services, and water use, and that Willow Creek’s project would have cumulative effects. Thus, the court concluded there was a fair argument that an EIR was required to address these concerns.

Wastewater Disposal Insufficiently Addressed by MND

Petitioners challenged the trial court’s finding that the MND sufficiently addressed the Project’s wastewater disposal. The court rejected Petitioners’ first argument that the MND impermissibly delays decision-making by requiring that the Project meet all wastewater regulations prior to construction, because requiring compliance with environmental regulations is a common and reasonable mitigation measure. The court, however, found Petitioners’ second argument regarding inconsistencies in the record more persuasive. The MND stated that the Project would use on-site systems to dispose of wastewater, but a County staff report stated that portable restrooms would also be used during events. Thus, the court found that an EIR was necessary to clarify the discrepancy.

Disposition

Accordingly, the Court of Appeal affirmed the trial court’s decision to overturn the project approval but reversed the trial court’s finding that the EIR need not analyze wastewater.

The authors would like to thank Sophie Stocks for her contribution to this blog post.

[i]California court decisions on California Environmental Quality Act (CEQA) related cases can impact business not only in California, but more broadly in other US jurisdictions (e.g., under the US National Environmental Policy Act (NEPA), though statutory provisions may differ). Latham’s case summary series provides a comprehensive archive of both published and unpublished cases, in order to track judicial interpretations of CEQA and new legal developments. Unpublished or “non-citable” opinions are opinions that are not certified for publication in Official Reports and generally may not be cited or relied on by other courts or parties in any filing with California courts in other court proceedings. (see California Rules of Court, rule 8.1115).

]]>https://www.globalelr.com/2018/12/california-appeals-court-determines-threshold-and-scope-for-eir-requirement/feed/0Environment Agency Data Shows Spike in Enforcement Undertakings in England and Waleshttps://www.globalelr.com/2018/12/environment-agency-data-shows-spike-in-enforcement-undertakings-in-england-and-wales/
https://www.globalelr.com/2018/12/environment-agency-data-shows-spike-in-enforcement-undertakings-in-england-and-wales/#respondThu, 06 Dec 2018 12:23:46 +0000https://www.globalelr.com/?p=3673Continue Reading]]>The growth in the level of undertakings throughout 2018 tallies with a general increase in environmental enforcement.

The Environment Agency has released data indicating that enforcement undertakings in England and Wales reached more than £2.2 million in 2018 — the highest-ever levels within a single year. The amounts raised under these undertakings were given to projects and charities that will benefit the environment and assist in cleaning up parks, rivers, and beaches. In addition, the enforcement undertakings include voluntarily agreed binding commitments to carry out remediation and/or other corrective action.

Enforcement undertakings are voluntary, legally binding agreements that regulators can use if they have reasonable grounds to suspect that an offence has been committed. These undertakings are one of the enforcement tools available to the Environment Agency, Natural England, and Natural Resources Wales in relation to potential environmental offences. Such offences include those relating to breaches of environmental permitting regulations, breaches under producer packaging requirements, and breaches of regulations concerning the discharge of wastewater.

The data published by the Environment Agency covered 1 February 2018 to 19 October 2018. Most of the enforcement undertakings during this period related to water discharge activities, and water companies were the subject of nearly 50% of the alleged offences.

The largest undertaking concerned Wessex Water Services Limited. Their offence related to a failure to comply with a permit condition in connection with a waste discharge activity. As part of the undertaking, Wessex Water Services Limited agreed to contribute £975,000 to the Dorset Waste Partnership, the Dorset Litter Free Coast and Sea Project, the Purbeck District Council, Swanage Town Council, and Durlston Country Park and Nature Reserve. Undertakings agreed with other companies were at lower levels (ranging between £5,000 to £232,000).

The severity of these recent undertakings are consistent with the progressively higher levels of environmental enforcement in England and Wales. This enforcement includes courts issuing higher fines (particularly for very large organisations) for environmental offences that are prosecuted. The publication by the Environment Agency of this data on enforcement undertakings, could indicate that the size of settlements is on the increase. This is something companies will need to consider in managing their environmental risks.

Senate Bill 100, signed into law by Governor Jerry Brown on September 10, 2018, aims to raise California’s already ambitious renewable energy standards by 2030, with an ultimate mandate of 100% clean energy by 2045. On the same day, Brown issued Executive Order B-55-18, which sets a target of climate neutrality for the state by 2045. These developments, as well as other clean energy legislation recently signed into law, represent a major step in California’s long history as a national and global leader on clean energy and climate policy, and will have large-scale implications for electricity supply and demand and electricity infrastructure, wholesale electricity markets, land use development, and more.

Lawyers from Latham & Watkins’ Environment, Land & Resources and Finance Departments discuss the business implications of SB 100 and EO B-55-18 as well as other clean energy laws, including:

Energy supply and demand and electricity infrastructure

Wholesale electricity markets

Carbon markets and California climate programs

Land use development and transportation in a low-carbon economy

View the webcast or download the presentation slides on-demand at any time by registering here.

The Parliament voted in favor of a single-use plastics ban and added its own amendments.

Plastics continue to face widespread regulatory attention in the EU. The European Commission (the Commission) released its Plastics Strategy in January 2018 and built on that effort with a proposed ban on 10 single-use plastics in May 2018 (a number of Member States have proposed similar national initiatives). The Commission’s proposals are currently the subject of the EU’s legislative procedure, which includes a review by the European Parliament (the Parliament). The Parliament is looking to materially extend the banned list.

Imposing obligations on producers in relation to the costs of waste management and building awareness

Implementing collective targets for single-use plastic bottles

Imposing standardized labeling concerning the presence of plastics, their negative environmental impact, and how such waste should be disposed

Developing awareness-building measures

The Commission’s proposals are now the subject of review by EU institutions. In particular, the Parliament has voted 571 to 53 to add obligations to the Commission’s proposal and make them even more stringent.

The Parliament’s amendments include:

Extending the ban to include a prohibition on expanded polystyrene packaging and oxo-degradable plastic bags

Implementing 25% reduction targets by 2025 for plastic products that currently have no alternative (such as burger boxes and containers for fruits and vegetables)

Notably, the Parliament’s amendments did not include a ban on lightweight plastic bags, which some NGOs had called for.

The Commission’s proposals, as amended by the Parliament, will be the subject of discussion by individual Member States and negotiation among the Commission, the Parliament, and the EU Council in November. A number of Parliament members want the legislation finalized by the end of 2018.

Food and drink and packaging manufacturers have lobbied extensively against the Commission’s proposals. These efforts will likely be redoubled as the legislation reaches its final stages of negotiations.

In an unpublished opinion issued September 14, 2018, Inland Oversight Comm. v. City of San Bernardino, Case No. E064836, the California Court of Appeal affirmed the trial court’s decision dismissing the Inland Oversight Committee (IOC), CREED-21, and Highland Hills Homeowners Association’s (HOA’s) (collectively, Petitioners’) appeal challenging the City of San Bernardino’s (City’s) approval of real party in interest First American Title Insurance Company’s (Developer’s) changes to a proposed development. In summary, the court determined:

In the CEQA context, the doctrine of res judicata applies if two actions involve the same episode of purported noncompliance.

Adequacy of representation for privity purposes is measured by inference, in other words, examining whether the party in the suit which is asserted to have a preclusive effect had the same interest as the party to be precluded, and whether that party had a strong motive to assert that interest.

The Water Code does not require a water supply assessment if a proposed development is not subject to CEQA review.

Background for Appeal

In 1982, City approved the Highland Hills Specific Plan 82-1 for a proposed residential development on a 541-acre site. The plan was later amended to allow for construction of low and moderate-income multi-family residential units in an area where single-family units had originally been planned. HOA challenged the change to the project, which resulted in a settlement agreement that was incorporated into a stipulated judgment in 1989. The settlement agreement noted that the developer had prepared a “North Plan” that provided for up to 1,730 residential dwelling units and a golf course.

In 1992, HOA, City, and the former developer agreed to an “Addendum” to the settlement agreement, which reduced the number of multi-family units permitted under the North Plan and required the developer to plant over 1,000 new trees over the golf course. In 2001, City’s Planning Commission approved a tentative tract map for the North Plan, which reduced the total number of residential units from 1,730 to 1,516. Later that year, HOA, City, and the former developer agreed to a “Second Addendum,” whereby the parties agreed that the environmental impacts of the North Plan had been adequately reviewed pursuant to CEQA, thus “no subsequent or supplemental environmental impact report is required.”

Additionally, the Second Addendum introduced a new application process to facilitate the approval of any “minor modifications” to the project. Under this process, a City director reviewed modification requests to determine whether they constituted minor modifications, which are defined as those that “result in development which is equal to or less intense from the standpoint of environmental impacts under CEQA than development pursuant to the North Plan” pursuant to a number of factors. These factors include fewer residential dwelling units, less commercial leasable space, and more efficient mitigation measures/conditions. The Second Addendum defined this process as a ministerial act.

In 2014, Developer applied for approval of modified construction plans pursuant to the Second Addendum (Modified North Plan). City hired an independent environmental consultant to evaluate the Modified North Plan according to the criteria for minor modifications under the Second Addendum. The environmental report noted that the Modified North Plan would:

Reduce the maximum total number of dwelling units

Eliminate all previously contemplated commercial uses, including the golf course

Substantially reduce both the total area disturbed by construction and the impact on wetlands, relative to the North Plan

The report concluded that the plan met each of the criteria for minor modifications.

City’s development director approved Developer’s application and, in June 2015, Developer and City filed a motion requesting that the trial court confirm that the proposed changes complied with the Second Addendum and that no further CEQA review was required. The trial court granted the motion in August 2015, finding that the proposed changes constituted a minor modification under the Second Addendum and did not require a supplemental or subsequent environmental impact report. In December 2017, the Court of Appeal affirmed the trial court’s order in Highland Hills Homeowners Ass’n v. City of San Bernardino (December 11, 2017, E064737) [nonpub. opn.] (Highland Hills).

Meanwhile, in 2015, Petitioners filed a petition for writ of mandate asserting that City’s approval of Developer’s proposed changes to the project as minor modifications violated CEQA and the Water Code. Petitioners alleged that:

The Modified North Plan required further CEQA review because of alleged new or more severe environmental impacts introduced by the changes to the project.

The Modified North Plan should not have been approved without a water supply assessment pursuant to Water Code section 10910 et seq.

Applying the doctrine of res judicata, the trial court found the preclusive effect of Highland Hills barred Petitioners’ CEQA claims. The trial court also held that City did not violate the Water Code and sustained without leave to amend the demurrer to the petition filed by City and Developer, dismissing the petition and entering judgment in favor of City and Developer. Petitioners timely appealed. On appeal, City and Developer moved to dismiss IOC and CREED-21’s appeals, while IOC and CREED-21 moved to strike portions of City and Developer’s motion to dismiss.

HOA’s CEQA Claim Barred by Res Judicata

First, the court held that HOA’s CEQA claim was barred by res judicata, explaining that:

Causes of action in two lawsuits are the same for purposes of res judicata if they involve the same primary right

In the CEQA context, the doctrine of res judicata does not apply if two actions involve the same general subject matter but involve distinct episodes of purported noncompliance.

The court observed that the episode of purported noncompliance at issue in HOA’s CEQA claim was the same episode already addressed in Highland Hills. In both cases, HOA contended that City violated CEQA by failing to conduct further environmental review of the Modified North Plan, instead approving the plan as a minor modification. Because HOA had already litigated the same claim in Highland Hills and lost, the court held that the doctrine of res judicata barred HOA from litigating the same claim again.

IOC and CREED-21 in Privity with HOA

Second, the court held that IOC and CREED-21 were in privity with the HOA and that the doctrine of res judicata therefore barred their CEQA claims as well. The court explained that adequacy of representation for privity purposes is measured by inference, in other words, examining whether the party in the suit that is asserted to have a preclusive effect had the same interest as the party to be precluded, and whether that party had a strong motive to assert that interest.

The court noted that:

Petitioners each have an interest in responsible land use and planning.

Petitioners asserted a position identical to HOA’s in Highland Hills, i.e., that the modifications to the North Plan are not minor, but rather have serious potential environmental impacts requiring additional CEQA review.

Nothing in the record suggested that HOA did not zealously litigate Highland Hills.

The court also found nothing in the record to support Petitioners’ contention that HOA represented the private interests of homeowners, while IOC and CREED-21 represented the public interest. Therefore, the court concluded that HOA adequately represented IOC and CREED-21’s interests in Highland Hills for purposes of the privity rule.

Failure to State a Claim under the Water Code

Third, the court found no error in the trial court’s determination that a water supply assessment was not required for the Modified North Plan. The court explained that the Water Code requires a water supply assessment when a proposed development is subject to CEQA and is also a project within the meaning of Water Code section 10912.

Relying on the finding from Highland Hills that the Modified North Plan was a minor modification under the Second Addendum that did not require supplemental or subsequent CEQA review, the court concluded that the preparation of a water supply assessment was not required.

Mootness of Motion to Dismiss

Fourth, the court denied as moot City and Developer’s motion to dismiss on the basis that IOC and CREED-21 are “intentionally undercapitalized shell corporations being operated by a law firm, [Petitioners’ counsel] Briggs Law Corporation, for the purpose of circumventing the fundamental procedural requirement of standing…”

Petitioners opposed City and Developer’s motion and filed a motion of their own, seeking to strike portions of the motion to dismiss. Because Petitioners’ appeal failed on the merits, the court denied the parties’ pending motions as moot.

Disposition

The Court of Appeal affirmed the trial court’s judgment and awarded respondents their costs on appeal.

[i] California court decisions on California Environmental Quality Act (CEQA) related cases can impact business not only in California, but more broadly in other US jurisdictions (e.g., under the US National Environmental Policy Act (NEPA), though statutory provisions may differ). Latham’s case summary series provides a comprehensive archive of both published and unpublished cases, in order to track judicial interpretations of CEQA and new legal developments. Unpublished or “non-citable” opinions are opinions that are not certified for publication in Official Reports and generally may not be cited or relied on by other courts or parties in any filing with California courts in other court proceedings. (see California Rules of Court, rule 8.1115).